Why Goldman staff should not bank on limitless holidays

Beware the siren call of unlimited vacation. Long a perk offered by technology companies — IBM was an early adopter in the 1990s — Goldman Sachs is the latest to scrap holiday entitlement. The Wall Street giant’s partners and managing directors are no longer bound by annual leave. Goldman’s junior bankers will still have a fixed amount of vacation but with two additional days from 2023. That may seem unfair to rank-and-file staff, who are complaining of punishing hours and burnout exacerbated by the pandemic. But in reality they may have the better deal. It turns out that telling high-performing workers in a cut-throat environment that they can take off all the time they want means very little time is actually taken.

Goldman’s chief executive, David Solomon, has said he wants to ensure that employees “take the vacation they need to recharge [ . . .] so they can continue to run hard, be competitive and run productively but also take care of their families”. He is right to equate rest with more creativity and productivity — and potentially, loyalty. The bank, which is strongly against working from home, is competing for top talent in an increasingly tight labour market — not just against other banks but also against hedge funds and tech companies. It may then make sense to offer unlimited vacation as a hiring tool.

It certainly makes sense for the bank. First, it may reduce payouts of accrued vacation days to departing employees. There are also wider benefits: an academic study showed that unlimited vacation can improve labour efficiency by attracting high performers and improving individual productivity, particularly in companies where there is “a strong firing threat for underperformance”.

Netflix is one such example. Its CEO, Reed Hastings, said fixed annual leave made little sense at a company with no fixed 9-to-5, and scrapped it in 2010. Netflix, like Goldman, competes for the very best employees, who exchange gruelling hours for a fat pay cheque. And, like at Goldman, the fear of being fired for underperformance is never far from their thoughts. Both companies are also headquartered in the US, the only developed country that does not have federally mandated time off for workers.

There is little evidence that unlimited policies lead to people feeling more rested. A 2017 survey by Namely, an HR platform, found that employees at companies with unlimited vacation policies on average took off 13 days a year, compared with 15 days by those with fixed plans. In the UK, the Chartered Institute of Personnel and Development frets that unlimited policies lead to less holiday and more stress. That is understandable: what was once ordained becomes a perk, laden with guilt and anxiety. Unlimited policies’ inbuilt ambiguity means that it is employees that monitor other colleagues’ time off, not the HR department.

Goldman is trying to mitigate some of those concerns. Statutory minimum holidays stipulated by countries outside the US must be honoured. It is mandating that employees take off a minimum 15 days a year, including a one-week block. That is in any case best practice for banks, where frauds are more easily detected when traders are away.

To reach the highest echelons of Goldman, partners will have had to accept the Faustian pact of being accessible at all times, including holidays. To an extent, then, it may be academic which days are labelled as vacation. If Solomon really wants to improve employees’ work-life balance, the best thing he could do this summer would be to lead by example. The part-time DJ could play a set in the Hamptons or Ibiza, then take to the beach for two weeks with his “out of office” email response switched on.